Governance to high pay, LIC marks its concerns with voting

In the nine months ending December 2023, the country’s biggest share market investor showed dissent in around 2% of the board proposals it had to decide on as a shareholder, and chose not to vote—abstained—in another 7.2%, while flagging its concerns, a Mint analysis of the company’s quarterly disclosures showed.

Among the proposals it turned down, LIC cited governance concerns in around 42%—the biggest reason for its dissent during this period. For around 19.4% of the proposals it voted down, the reason was lack of clarity or not being compliant with law. As many as 69% of the proposals that the state-owned insurer voted against were related to directors’ appointment, re-appointment, or remunerations.

LIC’s voting data is released every quarter, and is a regulatory requirement under Insurance Regulatory and Development Authority of India’s norms on stewardship and disclosures for insurers. The regulator insists on compliance in letter and spirit to ensure that corporate governance practices by listed companies are fair and equitable, and all public investors are able to make informed decisions while putting money in equities.

LIC, with assets worth over ₹50 trillion, is the country’s largest custodian of insurance policies. It acquires shares in Indian firms primarily using the funds it collects as premiums from policyholders and the money it earns from other investments. There are over 270 Indian companies as of December 2023 in which LIC owns at least 1% or more, the holdings being worth ₹13 trillion. As a shareholder at these firms, it was part of the voting decisions for a total of 1,965 proposals during April-December.

The December-ended quarter saw the highest share of proposals (8%) being turned down by the insurer, compared to less than 2% each in the other two quarters.

Among the directors-related proposals that the LIC voted down were the re-appointment of billionaire industrialist Nusli N. Wadia as director of biscuit-maker Britannia Industries Ltd and the appointment of Varun Berry as its managing director in August 2023. LIC attributed its dissent to non-compliance with regulatory listing norms and excessive remuneration, respectively, the filings revealed.

In November, LIC voted against the replacement of Karthik Natarajan as director of shaving-blade maker Gillette India Ltd, citing governance concerns. In July and December, LIC voted against the re-appointment of directors including Alicia Yi, Vivek Mehra and Sasha Mirchandani as directors of Zee Entertainment Enterprises Ltd., stating the company’s board, during their preceding tenure, had failed to address and adequately deal with governance concerns. The insurance behemoth also objected to the appointment of Adesh Kumar Gupta as a director over governance concerns.

Typically, large public shareholders, while investing in Indian companies, often follow LIC’s cues, given its 60% market share in the insurance industry and about 68% share in terms of equity holding among insurers.

Due to its “substantial say in the listed space, LIC’s voting may have not only protected the interest of thousands of common investors but also may have sharpened India Inc.’’s focus on governance,” said the head of a shareholder advisory firm.

Some of the proposals where LIC voted against included the re-appointment of celebrity adman Piyush Pandey as director of Fevicol-brand owner Pidilite Industries Ltd citing conflict of interest; re-appointment of a director on the board of car battery maker Amara Raja Batteries Ltd citing disproportionately high remuneration; and a change in employee stock option scheme and a loan proposal of Larsen & Toubro’s software arm LTIMindtree Ltd. over governance and transparency concerns.

However, LIC’s displeasure did not have much effect on the final outcome. Wadia is still non-executive non-independent chairman of Britannia, while Berry is MD. The replacement proposal of Natarajan at Gillette went through, but he has recently resigned with effect from 31 March and is no longer a director on Gillette board. Pandey is still a non-executive independent director on Pidilite.The resolutions on appointment of directors on Zee board didn’t go through and they are no longer the directors on the company’s board.

The data also showed that in 141 instances, LIC abstained from voting, while cautioning investors. Among such cases, it expressed its unhappiness over remuneration in 14% of the proposals and pointed out incomplete details in another 11% of proposals. Around 6% of the abstentions were because the insurer was prohibited from voting as it was a promoter.

The abstensions included a bunch of proposals by the board of billionaire metals and mining tycoon Anil Agarwal-led Vedanta Ltd., citing “material” related party transactions (RPTs). LIC stated that Vedanta’s proposed RPT with Bharat Aluminium Co. Ltd for up to ₹3,940 crore, RPT worth ₹3,475 crore with ESL Steel Ltd., RPT worth ₹2,864 crore with Ferro Alloys Corp. Ltd. and RPT worth ₹2,179 crore with Sterlite Power Transmission Ltd. each year, for three years from 1 April 2023 in each case, were all “non-compliant” with Sebi circulars.

Then, in another instance, Tata Group’s communications technology arm Tata Communications Ltd., in July, proposed to introduce an employee stock unit plan under which a total of 3 million units were to be issued, each to be converted into one equity share. LIC refrained from backing this proposal, stating that the exercise price was at a significant discount of 99.4% to the market value.

In one case, LIC said the revised remuneration payable to ICICI Bank’s brokerage subsidiary ICICI Securities Ltd.’s managing director and CEO Vijay Chandok was high for the size of the business. LIC refrained from voting on the proposal, while also stating that the remuneration proposed for ICICI Securities’ director Ajay Saraf too was high. ICICI Securities proposed to increase the payment of profit related commission from ₹10 lakh to ₹20 lakh per annum to the chairperson. LIC did not support this, stating that the tenure of the commission is not specified.

There were also several instances in which LIC cited its own “internal guidelines” as the reason to vote against or refrain from voting on proposals by companies. An email seeking clarity on these internal guidelines and on LIC’s investment strategy linked to its voting decisions remained unanswered.